Interfaces between Legality and Illegality in Markets

Conference | February 5-6, 2015

Topic and Goal of the Conference

At first sight, the identification of illegal markets and illegal activities on markets seems straightforward:
illegal activities are those that violate the norms of the law. At closer inspection, the distinction between
legality and illegality is more complicated.

First, definitions of legality and illegality are contested in the social practices of market actors.
“Legal” and “illegal” are labels attached to products, organizations, transactions, and processes that
provoke reactions of justification and protest, acceptance and rejection. Illegality becomes a much more
complicated category once the issue of legitimacy is taken into account. Market actors as well as law
enforcement agents relate differently to illegal practices depending on whether they are seen as legitimate
or illegitimate. Exchanges that are illegal but perceived as harmless in society may find greater tolerance
from state agencies. Other illegal exchanges, meanwhile, are considered repulsive and dangerous, and law enforcement
tries to fight them vigorously, often fueled by public opinion. The illegal markets for counterfeit clothing and the
illegal market for child pornography illustrate this point. Where perceptions of the legitimacy of formally illegal activity
come from and how they change is a research question in its own right. Social norms seem to play a role as does the issue
of who gets harmed. But legitimacy changes also with the economic situation. Crisis situations seem to change evaluations
of illegality. While tolerance for illegal survival strategies” seems to be increasing, tolerance for illegal behavior
of elites and powerful organizations seems to be declining, as the reactions to financial fraud after the crisis of 2007 seem to indicate.

Second, the distinction between legality and illegality is complicated through the intermingling of both types of
activities in organizations and markets. An officially registered firm may produce a perfectly legal product but
deliberately violate legal norms, such as environmental or labor regulations, while doing so. Similarly, financial crimes are typically committed within the framework of a perfectly legal and legitimate occupation,
making them hard to detect. Such forms of intermingling characterize most illegal activities within market contexts.
Activities with a clearly criminal purpose are effectively camouflaged by mixing them with legal activities positioning
them in legal organizations. Even markets in which production, handling, and consumption of the product are illegal,
e.g., illegal drug markets, have interfaces with the legal economy, for instance through money laundering. For the “success”
of illegal economic activities, the intermingling with legal structures and organizations is paramount.

We invite scholars working on illegal market activities to come to this two-day conference to discuss the interfaces between
legality and illegality in markets in the two dimensions mentioned above. Papers focusing on a wide variety of empirical
fields ranging from diamond production in Sierra Leone to financial crime on Wall Street will address the organizational,
relational, political, and cultural dimensions of the interfaces that can be observed between legality and illegality.

Organization

Jens Beckert
Director at the Max Planck Institute for the Study of Societies, Cologne

Matías Dewey
Research Fellow at the Max Planck Institute for the Study of Societies, Cologne